The financial sector has had a strong performance so far in September 2017. The Financial Select Sector SPDR Fund (XLF), which tracks the performance of the financial sector, rose nearly 4.4% on a month-to-date basis, as of September 27, 2017. In the first half of 2017, this ETF rose 5%. Major financial stocks JPMorgan (JPM), Bank of America (BAC), and Citigroup (C) returned nearly 4.6%, 6.3%, and 6.2%, respectively, on a month-to-date basis, as of September 27, 2017.
The gradual rise in interest rates is boosting the performance of financial stocks. The central bank has brought the key interest rate to the 1%–1.25% range. However, some fund managers such as Bill Gross and Richard Bernstein believe that too much tightening could be a major problem for the economy (IWM) and markets (SPY).
On the other hand, the rising expectation for the passage of a tax reform bill is also supporting the financial sector. The financial, technology (XLK), and energy (XLE) sectors stand to benefit the most from tax reform. The financial sector might continue its strong movement in the near future if companies continue to post earnings growth in the third and fourth quarters of 2017.
In the next part of this series, we’ll analyze the performance of the technology sector.